Societe Generale Soars on Bond Trading Profits, Stronger Reserves

Société Générale (SCGLY)  shares surged more than 5% Thursday after France's second-biggest bank posted third-quarter earnings that topped analyst expectations boosted by a strong performance from its share trading unit that offset a fall in its domestic retail business.

Shares climbed to the top of the CAC 40 leaderboard at €35.97 after it posted net profit of €1.1 billion ($1.22 billion) for the three months to the end of September, well ahead of analyst expectations of about €800 million.

The strength of the results was underpinned by a sharp increase in the bank's Common Equity Tier 1 ratio, a key measure of a bank's financial strength, which rose to 11.4%, up from 10.9% at the end of last year. The Paris-based bank is now close to its target CET1 of 11.5% to 12% for the end of 2018, leaving CEO Frederic Oudea with scope to expand lending and trading operations at a time when European rivals, including Deutsche Bank (DB) and Credit Suisse (CSGKF) , are having to reel in activities to bolster reserves.  

"We  had  been  worried  since  last  year that SG's plan to grow organically would consume too much capital at the wrong time. But ... to  give  credit  where  it's  due, we have got the ET1 we wanted -- and faster -- thanks to better risk-weighted asset containment," noted Exane BNP analysts.   

The star performer for the quarter was the group's trading unit, known as  Global Markets and Investor Solutions, which reported a 42% increase in net profit to €469 million in the third quarter from €330 million a year ago.

The unit benefited from a 44.2% increase in bond trading, which is booming amid uncertainty over interest rates following Brexit and speculation on the Federal Reserve's expected interest rate hike. BNP Paribas, France's largest bank, last week reported a surprise increase in third-quarter profit after its fixed income revenue climbed 42.2%.

Société Générale's net profit from French retail banking fell to €353 million, down 15.1% on the previous year, as Europe's low interest rates undercut loan earnings and prompted mortgage holders to renegotiate lower rates. Revenue from the French retail banking declined 6% to €2.04 billion.

Net profit from international retail banking and financial services climbed 31% to €457 million, notably boosted by better results from Russia, where the bank said that activity is stabilizing following the imposition of sanctions by western governments, while business lending is climbing.

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